Round Table on Fixed Income : Renewable Energy Assets Backed Bonds

Presented by: 1)Ms. Shreetama Ghosh  and  2)Mr. Jayen Shah CFA

Moderated by: Biharilal Deora, CFA

Contributed by: Sandeep Bhattacharya, Climate Bonds Initiative

Background and context: –

The CFA Society India recently conducted a roundtable on bonds backed by renewable energy assets. The roundtable, attended by members and industry analysts, focused on the opportunities and challenges of this niche but highly important sector. This article gives an account of the discussions that transpired at the roundtable. It has been written by Sandeep Bhattacharya of Climate Bonds Initiative.



It is estimated that, India requires US$ 1.8 trillion of additional investments by 2030 to mitigate the effects of climate change and also cater to the adaptation needs. In order to achieve the Nationally Determined Contributions (NDC) targets as agreed in the Paris accord, and ensure timely responsiveness to systemic risks of climate change, the conventional assets in the financial sector needs to be supplemented, and policies to help support the same are emerging.

Action taken by the Government

A part of the NDCs are commitments on clean energy, an area where the government has an ambitious target for deployment: 175GW of Renewable Energy (RE) installation by 2022 and 450 GW by 2030. Taken in context, India’s total generation capacity from all sources is about 360 GW currently. A strong institutional framework in the power sector has been used to roll out RE capacity through auctions.

Financing & refinancing of the RE assets 

RE deployment by private sector developers is currently funded largely by borrowing from banks and non-bank financial institutions. The IPPs’ (Independent Power Producers) receipts from PPAs (Power Purchase Agreements) are fairly fixed (varying with output) and low-risk, (though there are persistent delays by state utilities paying for their purchases) and are well suited to refinancing through a fixed income instrument like bonds.

Thus once the project is commissioned and is operating successfully, banks may refinance the loans through issuing bonds. Bigger developers, such as Renew Power, Greenko, Azure Power, CLP India and Hero Future Energies have directly accessed the debt capital market themselves.

Bonds have been issued both onshore and offshore – the latter accounting for the bulk of issuances so far. Presence of “dedicated green capital”, i.e. capital which can be invested only in environment friendly projects in the west attracted a lot of issuers, which acted as a clear incentive to label the bonds as “green”.

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Round table discussion on “Bonds Backed by Renewable Energy Assets”

In this context, CFA Society India conducted a roundtable on “Bonds Backed by Renewable Energy”, and the description of the event is as follows.

The session started with Biharilal Deora, CFA, Director CFA Society India, laying down some questions which are likely to be answered in the session and encouraged the participants to be interactive. The questions to be answered were as follows: –

  • How much of project risk does a RE project have compared to traditional power projects?
  • What will be the impact of the recently announced target of 450 GW?
  • How much of this can be financed by local capital?
  • Are NBFCs too exposed to RE?

The first part of the briefing session started with Ms. Shreetama Ghosh Chief Manager, Credit – Power at L&T Infrastructure Finance Co. Ltd, briefing about credit evaluation as seen at L& T Infrastructure Finance.

The brief from Shreetama dwelt on the following aspects: –

At L&T Infrastructure Finance, the major heads in evaluating risks for energy projects are

  1. Sponsor Risk
  2. Fuel supply risk
  3. PPA – There needs to be a PPA signed upfront
  4. Financing and cash flow risks

While solar module costs have been going down, the electricity costs have been going down much faster, and part of it can be explained due to the fact that returns on equity are also going down.

The solar modules are supposed to last for 25 years, and a test of the same needs to be done. L&T Infrastructure finance gets the testing done by DNVGL or Mahindra Susten.

Another feature which is a must for L&T Infrastructure Finance is a ring-fenced trust and retention account for the project. This isolates the project from other projects of the same promoter.

In addition, there are risks specific to the state where a project is located. In some states, the per unit cost of RE may be high due to some old projects. Such states may want to re- negotiate PPAs at a lower rate.

Expenses of RE projects –  The operation and maintenance is outsourced by means of a fixed price contract and thus, those expenses are fixed.

Post the brief from Shreetama, the session became interactive, with queries on financing needs of the 450MW RE targets; possibility of operating lease for RE; the risk and opportunities of corporates in-sourcing their consumption of RE through captive power plants; distributed RE assets; typical profitability levels and the current situation in wind power.

This was followed by a brief from Jayen Shah CFA

 Jayen touched upon the following:

Debt funding of projects has largely come from domestic investors, whereas major international players have been active in equity.

Many sovereign wealth funds, multilateral Development Banks like IFC, and global pension funds have stakes in a few of the IPPs. Some examples of such IPPs are Greenko, Renew Power, Azure Power etc. CDC has promoted an IPP, exited and then re-entered the segment by backing Ayana Power. Given this play, a lot of companies started with the intention of being in this field for the short to medium term.  Their motto seems to have been “let us start and someone will buy out”. There has been notable consolidation in the field – some players who exited include Kiran Energy, bought out by Hinduja Power; and Welspun Renewable Energy Pvt. Ltd, bought out by Tata Power. Renew Power too has grown by buying out a few IPPs.

In the bond market, CLP India was one of the earliest IPPs to issue a green bond.  This was the first corporate green bond to come to the market, and was issued in September 2015. In addition, Tata Power have issued bonds to fund their RE operations.

IIFCL came up with a first loss default guarantee product in 2010.  The first transaction, involving assets of Renew Power, happened in 2015   This had a 28% first loss guarantee and uplifted the credit rating of the instrument from A or A- as warranted by the assets, to AA+( SO). The tenor was extended to 17 years.

In terms of investor appetite, insurance companies and exempted provident funds participated. The Employees provident fund organization however did not participate.

This transaction as a market educator. There have been 3- 4 deals which have happened since. These transactions have survived some of the stress scenarios of delay of payments by DISCOMS.

The issuance of green bonds has been a lot more active in the offshore markets, where investors have been lured by the benefits diversification offered by dedicated green capital, apart from cost efficiencies.

Major offshore issuers have been IPPs like Greenko, Renew Power, Azure Power, etc. together with institutions like EXIM Bank, SBI, REC, PFC, NTPC, IRFC and IREDA (both NTPC and IREDA issued a Green Masala Bond).

Besides the issuance of green bonds, there were discussions around several other topics.  These included the relevance of carbon credits, the presence of “dedicated green funds” in the offshore markets and their consolidation, institutions with appetite for term debt for RE projects etc.

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Session on “Practitioner’s Session on Venture Capital- Understanding Fund Raising for Technology/ IT Companies” by Mr. Vipin Agarwal

Contributed By: Vidusi Saraf


In today’s pecuniary setup, Venture Capitalists give hope to entrepreneurs to believe in their ideas and create value.  To throw light on intricacies of fund raising; functionality and psychic of venture capitalists, Mr. Vipin Agarwal addressed a curious gathering at Holiday Inn, Aerocity on 19th October 2019. Key highlights of the session are as below-

Part 1: From the past decade that went by

The tone of the session was set around deal making and investor types. To start with, Vipin talked about VC investments in Tech in the last decade.

During the era of “India Shine” in 2004, financial institutions in India led the VC investments in India. The earliest bets in private equity were taken in technology and infrastructure – logistics, power, real estate, telecom etc. This era closed with Reliance Power IPO in 2008 which was also the time for the global slowdown.

Next phase of upsurge came in after UPA took charge of their second term in 2009. “India Digitizing” saw the rise of e-commerce culture in the country. With names like Snapdeal, Flipkart, Jabong etc., classic VC deal making embarked the stage. Around that time, more than 50 investments were done in this space which started to consolidate in 2013.

2014 saw a sudden change in landscape with “Mobile Hopes.” Lot of global players entered this sector which led to drastic fall in mobile prices. Multiple round of funding was followed by a quick round of consolidation in 2016, leading to another downcycle.

Concluding the first part of the session, Vipin presented the “Bharat Arriving” theme popular in the VC community across the country today. It’s a period nursing Indianisation of investments with focus on tier 2 and tier 3 cities. He believes that India follows the Chinese way of building a business ecosystem, that 3-4 year cyclical trend in VC industry followed by a period of stillness has been in tandem with global giants like US and China.

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Part 2: How to identify the investor?

One of the explanations for fading rounds of funding for a start-up is conflict of interest amid the founders and investors. Vipin emphasizes on the fact that “Investor wishes should always match start-up’s aspirations”. How the investor examines the business of the entrepreneur plays an imperative role in making an entrepreneur strike the deal.

To throw more light on this, he divided the type of investors in 4 broad categories based on their venture outlook:

  1. Are you targeting a billion users?

This category comprises of those who solely look at the massive opportunities in the market, at how distinctive an idea is, at the expanse of people who will use the technology. Likes of investors in players like Facebook, Twitter and other B2C type products. Investors of this group are risk lovers and have the potential to go all-in at the very beginning, if they see the potential. They are not so moved by revenue and profit numbers but, rather by the quantum of audience targeted. 

  1. Where’s the money, honey?

They are the ones who make decisions based on critical analysis of the business model, revenue drivers, profitability metrics and other such variables. They love B2B technologies, and B2C with clear monetization. Unlike type 1 investors, they will only come in when the revenue drivers are in place. In such cases, multiple rounds of funding with the same investor is more likely. These late stage investors, are reasonably more challenging to deal with. 

  1. Did you disrupt anything?

These investors have, in most cases, tasted the flavour of entrepreneurship earlier and are now sitting on the other side of the table. They are always on the look out for innovative technology – newer ways of disrupting the conventional practices. Their razor-sharp focus is on the product idea. Unlike type 1 investors, they will only come in when the revenue drivers are in place. Hey are often negligent about monetization. Investors in this group, will bring in their own capital and pitch the product further to their network of investors. They are equipped to provide a support system if they are swayed by the idea.

  1. Change the world, please!

It’s an emerging group of investors whose idea is to make a social impact yet also earn money. This interesting dynamic is yet to be established and explored in our country. The amalgamation of an idea which brings a positive change in the society with a sound profitability model is challenging. There are some case studies which can be the stimulus to delve into the space.

Part 3 – How to value a company?

The last part of the presentation dealt with striking a deal with the investor. The ultimate goal of an entrepreneur is to persuade the party on the other side of the table to accept the offer. To be able to do this, an entrepreneur needs to understand the psychic of the investor and their style of investing. Entrepreneur should be able gauge what attracted him the most and the category (discussed above) he falls in from the first few conversations. The idea is to determine the KPIs that the investor is looking for in your company.

However, while presenting a case; using jargons, name throwing, ample charts and terms are certain details that Vipin recommended entrepreneurs should be wary of.

Largely, the session focussed on various behavioural and fundamental factors that an entrepreneur needs to contemplate upon during the deal making process. Certainly, emotional elements are as vital as the financials in a deal making process.

Link to session ppt –CFA-Lecture-Vipin-Agarwal-Oct-2019

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Session on Ranking Business Models by Ashish Kila

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Contributed by : Vaibhav Jain, CFA

CFA Society India, Mumbai Chapter hosted Ashish Kila on Thursday, 10th October. Ashish shared his thoughts on “Ranking of Business Model framework to select and allocate to great businesses”. Key takeaways of the session are as follows:

He presented the 4 C’s of investing – Cloning, Checklist, Capital Allocation and Checkout and elaborated on each one of them

  • Cloning – creating a universe of business to then further study. He suggested reading and following the domestic and global legendary investors and see the current themes going around globally, like QSR, food delivery, staffing
  • Checklist – selection of a stock based on 5 essential qualities (in the order of preference). All criteria need to be satisfied
    • Management
    • Longevity
    • No structural headwind / long term tailwind
    • Scalability
    • Favorable industry structure
  • Capital Allocation – Select on the basis of upside (using checklist) and then size them on the potential downside. Position sizing is the primary driver of portfolio returns. For this, he focused on 6 desirables
    • Valuation
    • Annuity
    • Switching cost
    • Optionality
    • Side Car Investing
    • Ability to capture dominant market share
  • Checkout

Ashish made the session extremely interesting by giving various examples in Indian context with each of the above points. He made a framework of ranking businesses on X-Y chart where X-axis showed Annuity and Y-axis for Switching cost.

The session ended with few questions from the participants and followed by the networking dinner.


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Financial Talent Summit, Mumbai

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CFA Society India organised 3rd Financial Talent Summit in Mumbai on September 28, 2019. Full day event covered the topics on emerging career areas for CFA candidates and charter holders also the skill sets required to get into those. Key takeaways from various sessions are as follows:

Session on “Moving Minds : The Power of Conversational Influence”

Presented by : Joshua Davies, Principal Consultant at Knowmium

Moderated by: Jayesh Gandhi, CFA

Contributed by : Vaibhav Jain, CFA

Joshua Davies, Principal Consultant at Knowmium, was the keynote speaker, kicking off the speaker series at the FTS, with the subject “Moving Minds: The Power of Conversational Influence”. Key take always from the session:

  • The session started with the theme of role of positive influence, how soft skills about communication and empathy are far more important than technical skills when one moves up the career ladder
  • Joshua involved the audience in practical games where 2-member teams were formed and were given an exercise to demonstrate the relevance of influencing abilities, listening and building trust
    • How did one frame the request, position one’s view, who spoke more, was one able to build trust and how did the partner view your request – was it a compromise? He suggested that to establish trust in first meetings, do the through research on the person or company you are meeting and open up genuinely.
  • Knowing vs doing– it’s very easy to know and understand the problem but difficult to actually implement that. This was again demonstrated by a practical thumb finger exercise
  • Discussion on triangle of Context-Character-Culture
    • Context is the situation – family, co-workers varies
    • Character is the individual variation even when they are from same demographics
    • Culture is the different cultures depending upon the geographical regions
  • Compared different cultures based on countries and the conversational overlaps that might create confusion or misunderstanding if one is conversing with a person of different cultures without having knowledge about it. Hence, it is important to understand the cultural aspects while communicating across geographies. Like some culture can be high context and others might be low context.
  • When do we go with a push or a pull in conversation – this depends on the situation
  • Building trust – Move from transactional to relationship orientation. Study up, show up, open up, follow up
    • We need to move a person from point A to point B, which isn’t a straight path but involves a lot of Stops. An efficient communicator is to build the trust and move the person from point A to point B efficiently
  • Audience Analysis– always prepare well before going to face an audience. Before going into a conversation, write 5-10 questions what other might ask you
    • Whoever controls the questions controls the conversation
    • Ask more open questions, dig deeper when asking questions
    • Move the conversation back and forth

This was followed up with a brief Q&A round


Session on “Emerging Opportunities for CFA Careers in AIF Industry”

Presented by: Manish Makharia, Business Head – Alternative Investment Fund, SBI Funds Management

Moderated by: Litesh Gada, CFA

Contributed by: Vaibhav Jain, CFA

  • He started off with asking the audience if anyone was working in the AIF industry and following up with who wants to get into this field and why
  • After getting a sense of the collective wisdom of the audience, he defined Alternative Investment Fund as a capital raising instrument when capital available from traditional sources gets exhausted or is unavailable
  • Discussed the regulations around AIF, with the SEBI as regulator came up with AIF as an asset class in 2012, after PMS regulations came up as early as 1993
  • Defined the characteristics – type of capital, investors, management, liquidity, customization, etc
  • Listed out major players in various segments
  • The industry has been growing massively with total private market fund raising expected to reach $7.5 trillion by 2023 (CAGR of 8%)
  • Government has been very supportive for AIF Industry with launch of GIFT City, opening up FDI investments and HNIs / FPIs are encouraged
  • Wrapped up the session describing various facets and departments in an AIF and what sort of skills are needed to get into those divisions.
  • He clearly emphasized that AIF is high risk high reward industry. One has to be clear as to which part of AIF industry one wants to work PE/VC or hedge fund as both require different skill sets and it is difficult to move from one to another. To consider AIF as a career option, one must keep in mind that profession is quite demanding and requires patience and dedication to establish oneself in the industry.

Followed up with a Q&A round


Session on “Emerging opportunities for CFA careers in Distressed Asset investing”

Presented by: Sourav Mishra, CFA, Head of structured credit, HSBC

Moderated by: Jayen Shah, CFA

Contributed by: Rajni Dhameja, CFA

Session started with Jayen briefly explaining the various segments in credit markets and how top rated segments differ from high yield segments. He introduced Saurav Mishra and the session started. Key takeaways:

  • Credit markets is an opportunity for CFA candidates and charter holders as the work involves analysis of the companies
  • The emerging areas in credit markets apart from traditional credit is in distressed credit
  • Introduction of IBC has created opportunities across the value chain
  • One must understand the nuances thoroughly hence it is important to be detailed oriented as identifying a distress company where funds can be deployed can be quite challenging
  • Patience and perseverance is a key to succeed in this space as closure of one deal can be long drawn process. Sometimes the deal gets dropped after some amount of time and effort is invested in it
  • After a lot of effort, when distressed asset gets revived and brings livelihood to the people who were affected by it, that is the point of ultimate satisfaction which brings purpose to the job


Session on “Are you data science ready? Skills for investment professionals”

Presented by: Dr. Jatin Thukral, CFA

Moderated by: Shreenivas Kunte, CFA, Flipkart

Contributed by : Priyank Singhvi, CFA

Science is the science of extracting actionable insights from data. This data can be both structured and unstructured. It employs techniques used from Statistics, Mathematics and Computer Programming. Deriving insights from data has been going on for a while but what has changed over the past few years is that the sheer scale of this has changed on back of advances in technology, telecommunications, social media and machine learning. There has been explosive growth in generation of data and ability to store and analyse that by businesses. This has in turn lead to exponential growth in jobs in this field. Harvard Business Review has called the jobs in the field as the sexiest jobs of the century.

Data science is used in finance in multiple ways like customer experience enhancement, risk management, assent management, FinTech and data monetization. The customer experience is enhanced through applications like personalized customer service, chatbots and voice recognition, etc. Use of data for through activities like better fraud and money laundering detection, insurance automation, etc. is used for risk management. Asset management sector used data science in managing quant funds, algo trading, etc. App based loan approvals and disbursals are examples of use of data science in FinTech.

Data Science is disrupting the financial sector by increase in productivity and emergence of new business models. These are manifested through the following techniques:  automation of the processes, scalability through analysing vast data, big data engineering, ability to use alternate and unstructured data, deriving consolidated insights by combining various week data sets. To illustrate application of these techniques, the speaker elaborated on use in the rapidly grown sub-sector of Quant Funds.

Quant Funds are the funds that extensively use quantitative techniques for security selection. Till about early 2000s most quant funds mainly used simple economic indicators and ratios like PER, div yield, etc. But in mid 2000s quant funds started using more complex data sets and by late 2000’s they started significantly outperforming fundamental based funds. Use of data science started becoming a differentiator for the more successful ones. Data science allowed these funds to achieve unprecedented scalability of insightsfor example machines to read millions of sell side reports, or, messages on investor forums, in a manner that is humanly impossible. Similarly through techniques of big data engineeringit is possible to find patterns across billions of orders, or, to identify biases like herding in millions of order flows. The more imaginative ones have started using alternate data sets, like ship booking to assess sales outlook of the management, or, analysis of employee boards to assess staff sentiment, etc. Advancement in technology and data science have also allowed to process unstructured data sets like biases hidden in texts of analyst conference calls, or detect signals hidden in central bank interviews, traffic and parking data to assess a malls sales, infra demand etc. as was done by some to correctly value REIT’s of sparingly occupied Chinese townships.

After success of data science in Quant Funds, some fundamental and value investors started applying it in their analysis and their success has led to wide understanding that it is not a technology fad and has applications across various segments of finance.

Today financial institutions are the biggest employers of data scientists. Data science is a vast field and requires two groups of skills: Math and Computer/Programming Skills. Statistics, machine learning, deep learning, artificial intelligence are the key math skills required in data science. Within programming, Python, is the best starting point. Learning is a journey and most popular skills is a good way to start. Afterall there is a reason why they are the most popular skills!

This was followed up by Q&A round with Shreenivas Kunte


Session on “Careers in Wealth Management and Private Banking Industry”

Presented by: Anshu Kapoor, Head of Private Wealth Management at Edelweiss Financial Services.

Moderated by: Gajendra Kothari, CFA

Contributed by: Vaibhav Jain, CFA

  • Anshu commenced the narrative by highlighting his career trajectory, that he never intended to get into Wealth industry but eventually moved towards it. In fact, back in 1990s when he started, this industry didn’t exist fully
  • Anshu showed how big the Wealth industry today in India is with growing number of HNIs and promoter families at a large pace
  • Compared to global market, India is still small in terms of coverage of individuals by professional wealth managers, so there is a lot of scope. Demand isn’t a constraint
  • Currently, billion dollar individuals in India are around 140, more than that of Japan
  • So what exactly is wealth management? As Anshu defines it – “helping clients spot opportunities and trends and protect them from risks”, hence it’s not only investment management but way beyond it
  • What competency is needed for a career in wealth management? – knowledge about various asset classes, financial markets, knowledge of global economy, products and services and technology
  • Empathy is one of the most important soft skill a wealth manager should possess
  • Other soft skills required are constant curiosity, imagination, global perspective, dealing with volatility and having patience

This was followed up by Q&A round with Gajendra Kothari


Session on: ” Getting Hired ! Landing your dream Job”

Presented by : Nalin Moniz, CFA, CIO, Alternative Equity, Edelweiss Global Asset Management

Moderated by: Jayna Gandhi, CFA

Contrbuted by: Rajni Dhameja, CFA

This was the last session in the conference. The earlier sessions focused on what are the emerging areas where one can look for the jobs and what are the skill sets required for those jobs. This session was about the next step, about how to get the job!

Nalin started with discussing the 5 real life examples who have taken unconventional path to land their dream jobs. 4 examples were of his mentees and the fifth was his about his career journey as he transitioned from overseas to India. He guided about the commonality across 5 examples. Following are the key takeaways on how to land your dream job:

  • Always be up skilling : Keep on learning the skills which are important for the role you aspire for
  • Network in focused and thoughtful manner: Connect with people who are part of industry in which you aspire to go
  • Have a goal in mind and then work backwards
  • Don’t be afraid to take risks in lateral shift. Sometimes you get internal opportunities in the roles you aspire for, don’t be afraid to take risk on those
  • Entrepreneurship can be fast track. Sometimes being entrepreneur brings you the opportunities which you have not imagined for

He emphasized that celebrate your diversity. Celebrate what makes you unique. This will help you to bring the value addition which is unique to you.

This was followed up by Q&A round with Jayna Gandhi


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Market Outlook-October 2019

Contributed By : Navneet Munot, CFA , CIO, SBI Funds Management Pvt Ltd and Chairman, CFA Society IndiaNavneet-Munot

The sharp economic slowdown of the past several months had necessitated policy action at a war scale. The Government responded with big bang reform on corporate taxes. The sharp cut essentially represents a huge transfer from the government to the corporate sector. In our view, this move underlines the government’s belief that it is the innovation, efficiency and enterprise of the private sector that will drive growth while the government plays the role of a facilitator in business.

While this move doesn’t directly address the near-term demand weakness beyond providing a sentiment boost, this is an important step towards reviving the investment cycle. Followed with appropriate regulatory realignment, this would also help in bringing in foreign manufacturing as global supply chains readjust. This in turn should create employment leading to sustained consumption and growth. In fact, the consumption driven growth of the past few years while investments struggled was unsustainable as incrementally this consumption was being financed through dipping savings and increasing leverage, as income growth severely lagged.

There are concerns around the implication on fiscal deficit. While the fiscal pressures are for real, the government has levers to address those. For one, the move should strengthen the government’s resolve to shore up its finances through asset monetization and strategic divestments. Similarly, there is room for significant increase in GST compliance as collections have run way below expectations so far. The time is also ripe to relook at subsidies. The experience with fuel subsidy was very encouraging. With better adaption of Direct Benefit Transfer (DBT), food and fertilizer subsidies can also be rationalized.

Given the global backdrop, the tax reform assumes greater significance. There is enormous uncertainty globally, from frail economies to rising geopolitical tensions: trade tensions between US-China and Japan-Korea, Brexit, Hong Kong, the middle east to name a few. India being integrated with the rest of the globe is bound to be impacted, yet this can be our opportunity to stand out and stand tall. Amidst all the chaos, India can carve out a position of strength for itself owing to several factors.

India for one is a large and stable democracy with a strong political leadership. At a time when the world continues to experiment with unconventional monetary policy, India has been relatively prudent on monetary and fiscal fronts. While the world is grappling with excess leverage, we have modest debt to GDP. When currency is increasingly being used by countries as a tool against economic challenges, India has largely left its currency to market forces. Globally while policy uncertainty has been on the rise, India has been cracking down on corruption and black economy and improving the ease of doing business. When climate change is emerging as the biggest risk, India is already taking a lead on environment (non-fossil fuel adoption, ban on single use plastic, water conservation to name a few) despite the stage of our economic development.

The common theme across all these, be it strong democracy, prudent fiscal and monetary policy, market determined currency, modest leverage, crackdown on black economy or environment and social security initiatives, is that we have ingrained sustainability in our development model. And in that context the fact that the government has sought to revive investments through corporate tax cuts rather than wasteful consumption emphasizes its focus on the structural rather than here and now. At a time when investment opportunities are scarce globally and money is abundant, India can be an oasis of hope for foreign capital. Yet, in spite of the inherent strengths of our model, we shouldn’t be counting our chickens before they hatch. There is a tremendous lot to be done before we hope to be a truly viable investment destination for the world.

Starting with sustainability, one remarkable achievement has been the empowering of masses as a way to sustainable development. The integration of the rural masses with the mainstream through road, electricity, financially, digitally and through improved social security should go a long way in rural India catching up with urban India. The resultant rise in their aspirations has to be positively channelized to move the large population employed in relatively unproductive agricultural activities away into more productive sectors by reskilling them. Within agriculture, reforms such as farmer education, land record digitization, investment in logistics and food parks and contract manufacturing to name a few have the potential to significantly improve productivity.

Being a country deficient in risk capital, we need to do more to channelize both domestic and foreign savings. A sovereign bond offering in local currency can do a lot of good to building credibility around Rupee as well as India. Effort should be made to get these local currency bonds included in international bond indexes. An associated outcome will be a better bargaining position with rating agencies. These are vital as we have humongous investment needs for infrastructure build up. Given the challenges faced by private sector in the previous cycle, asset recycling, by inviting long term investors in infrastructure assets to free up capital for further asset creation, has to be the dominant funding model.

While raising investment rate is a prerequisite to raising domestic savings, these savings have to be better incentivised to move to financial assets rather than physical. Especially flow into equity markets remains abysmal denying corporates the much-needed risk capital. Corporate tax cut is an important step; the government should evaluate following it up with removal of long-term capital gains tax to encourage equity flows. Jan Dhan has been a great success story on financial inclusion. How about Jan Nivesh to encourage more financial savings?

A direct tax code with a significant simplification and lowering of personal taxes will go a long way in channelizing savings. A radical simplification of tax filings, through measures such as Aadhar linkage, app-based interface or faceless pre-assessment, can be a significant boost to tax compliance and collections. And not to forget the behavioural aspects of it all, we wonder what changing the name of income tax to something like Swabhimaan Yogdaan and GST to Rashtra Nirmaan Yogdaan will do to willingness of Indians to pay their share of taxes!

Finally, investment cycle won’t revive without a revival in business sentiment. After a period of what many commentators believe to be regulatory and judicial overreach, the PM in his Independence Day speech acknowledged the need to respect wealth creators. The current tax reform is an important step in that direction. Regulatory environment needs to align with taxation now and soothe more nerves to unleash private sector’s enterprise. While these tax cuts help private sector deleveraging, focussed approach on NPA resolution and bank recapitalisation is needed to kickstart credit growth.

Financial sector is the life-blood of the economy and addressing challenges in that space is of utmost importance, especially given the role reflexivity plays in shaping the real economy. NCLT like framework to deal with stressed entities in the financial sector, refinance window for illiquid assets with appropriate haircut, steps to revive real estate and MSME sector, a scheme to provide priority debt to stalled but viable projects that are NPA are some of the steps needed. While ensuring abundant liquidity, a strong message that “we will do whatever it takes” along with swift and coordinated policy response are needed to alleviate the current stress and set in motion a virtuous cycle.

Bond yields have spiked on fears of fiscal slippage post tax cut announcement. Given the local growth-inflation dynamics, weak global growth and commodity prices, and given these tax cuts don’t do much to inflation expectations, we expect the RBI to remain accommodative. Given the already elevated term premium, expect yields to cool off as a result.

Equity markets aren’t discounting a new investment cycle yet given the concerns around financial sector stress. The recent up-move therefore has barely mimicked the upgrades to FY20 earnings owing to tax cuts. However, with corporate profits to GDP at multi-decade lows, mean reversion may be in order. Investors should take comfort that Government is intent on decisive structural reforms to fortify India’s position in the global arena.

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Session on “A Practitioner’s Insight on Manager Selection” by Ms. Geeta Kapadia, CFA

Contributed By : Tarun Gopal


The term “Manager Selection” is always a buzzword in the universe of institutions like Pensions, Insurance, Foundations, and Endowments etc., as this decision pretty much defines the fate of their Investment goals. To share some insights and best practices, the Delhi chapter of CFA Society India organized a session on Manager Selection on 9th Aug 2019, which was conducted by Ms. Geeta Kapadia, CFA. She’s a senior Investment strategist at Yale New Haven Health System, where she is responsible for assets under management (AUM) of approx. $3 billion.

In this session, Ms. Kapadia shared some valuable insights of how she and her team select the manager for their Investment portfolio at Yale New Haven and most importantly what they look for in these managers which form the basis for their judgment.

The session started with Ms. Kapadia’s three golden mantras that they look for in the managers at Yale New Haven and the associated questions, which one needs to address before selecting/ rejecting a manager. These were as follows:

  1. Experience:
    • How long have they managed or been managing assets?
    • Over what cycles have they managed these assets?
    • What sort of firms do these portfolio managers have worked in the past?
    • Do they have experience in owning and managing a firm?
    • What are their personal management/ mentoring styles?
  2. Alignment:
    • What’s the client base of this manager? How long have their longest clients been on board?
    • Does the firm have an advisory board and who’s on it?
    • How do their investment professionals get compensated?
    • How are fees determined and shared?
    • What is their strategy’s stated capacity and has it changed?
  3. Edge:
    • What does the manager say which makes them different? And what are the factors which actually makes them different?
    • Which other manager(s) have a similar process/ philosophy?
    • What differentiates this manager from its peers in terms of performance and strategy?
    • What do their clients and competitors do?

Ms. Kapadia emphasized that these were the general considerations which everybody should look for.” But even these considerations don’t define the success and desired goals of the portfolio”, she added. She then went on and shared some examples from her personal experience where this selection process didn’t work and defeated the purpose. She also shared the lessons she has learned from these instances which has guided in her career.

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Manager A: PM Failure


  • This manager was one of the top 50 hedge fund which was founded in 1991 and was operating as Fund-of-fund in U.S.
  • Firm was handling around $3 billion of AUM through a single office.
  • This was a focused small team, managing assets for many years together.
  • In 2013, founder and CIO were charged with solicitation.
  • Afterwards, the firm continued business as usual.
  • Firm then experienced immediate redemption and shut down in 2014.

Lesson Learned:

All the due-diligence in the world cannot guard against one-off events.

Since these events doesn’t form part of the due-diligence process it’s hard to predict events like these which could affect the manager’s reputation and triggers redemption.

Manager B: Headline Risk


  • This manager was also with a hedge fund which operated as Fund-of-fund in U.S., with $98 billion AUM and growing.
  • Firm was frequently in news due to a Managing Partner’s interest in politics.
  • In 2017, Trump White House announced that this Managing Partner would join the administration.
  • A sale of this Manager B firm to two Chinese financial firms was announced in 2017.
  • Managing Partner stepped down from his role at Manager B firm to join the administration.
  • The announced sale was then cancelled and Managing Partner returned to the firm.
  • These news triggered redemptions resulting in liquidation at unfavorable terms.

Lesson Learned:

Uncertainty breeds more uncertainty.

With this example, Ms. Kapadia stressed on the uncertain events which could spoil the investment goal that you have been framing with a particular manager, with just a headline in the news or bad mouthing. She also stressed upon some additional due-diligence related to key personnel of a manager and their associated outside interests, such as politics, which could deviate that manager’s focus entirely and could further hurt the investment goals.

Manager C: Headline Risk


  • This manager was with a hedge fund focused on credit long/short investing.
  • Firm was little known to the retail investors with $4 billion in AUM.
  • In 2019, a Bloomberg article came out raising concerns about the founder and Portfolio Manager.
  • Firm denied allegations made in that article.
  • Bloomberg then made few small corrections.
  • By this time, most of the damage was already done.

Lesson Learned:

It’s better to give up some upside rather than be the last one out of the door.

With this example, Ms. Kapadia shared her learning of not just focusing on upside potential of returns with the manager, but rather taking a timely judgment call to get out of the relationship.

Manager D: PM Departure


  • Portfolio Manager(PM) and supporting analyst team had recently joined a large, global investment management firm with a parent company in U.S.
  • This PM was highly regarded and was considered as a star PM in the investment world.
  • Kapadia and her team personally went to congratulate him and his team.
  • PM acted as a boutique team within the large firm, but this wasn’t a sustainable arrangement from parent company’s perspective.
  • PM attempted to negotiate with the firm.
  • None of the analysts were senior enough to lead the team in absence of PM who had decided to depart by that time.
  • Redemption then quickly followed the news and the firm had to close its strategy.

Lesson Learned:

Consider who the ultimate owner of the firm is and what their incentives are.

With this example, Ms. Kapadia stressed upon the importance of not following a particular person for the investments objectives, in this case the star PM of the firm. Always consider the scenario and the impact it might lead to the investment performance in the event of departure of these key personnel.

With these examples, Ms. Kapadia reflected again their own factors which they consider at Yale whenever they have to select a manager for their portfolio. These are Experience, Alignment and Edge. In addition to this she also shared that they usually look for the managers who are comparatively smaller in size and are operating under the umbrella of around $2 billion of AUM.

Overall, this was a great and informative session where participants had an amazing interaction with Ms. Kapadia. Many of them asked their real life issues they face in their own professional arena and asked for her opinion and how she would have handled those scenarios.


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Article on “Importance of Sustainable Investing” by Mr. Navneet Munot, CFA


Contributed By : Navneet Munot, CFA , CIO, SBI Funds Management Pvt Ltd and Chairman, CFA Society India

  •  There is a need for large fund houses to take the lead on sustainable investing
  •  Long-term growth of the economy will happen when firms will focus on sustainability

Mutual funds are trustees of people’s money and owe a fiduciary duty—first to their investors and then to the community at large. It can be best served, not by trying to maximize short-term profitability, but by ensuring optimization of long-term return and risks.

As part of our fiduciary responsibility, value system and risk management strategy, it is our core belief that a business run in the best interests of all stakeholders seldom fails to create lasting value for its investors. Investing is an approach where apart from financial considerations, one looks at environmental footprint, social impact and governance factors of the investee companies. Companies focussing on triple bottom line (people, planet and profits) deliver sustained returns over a long period.

Environmental risks are bound to gain prominence in India. As per the World Health Organization (WHO), India inhabits 14 of the 20 most polluted cities of the world. It ranks among the top three nations to see the highest number of deaths from air pollution. The country is fast pacing towards becoming a water-stressed zone. As per a NITI Aayog study, 40 cities are likely to face drinking water shortage over the next decade. There are serious concerns about soil degradation in India and increased oceanic acidity world over. Rising inequality, with poor literacy and human development index in a democratic society, has the potential to creates risks for businesses as well.

Even as India is growing faster than most other economies, it is still a $2,000 per capita country and is yet to catch up meaningfully in the income ladder. In the process, the resource intensity of consumption is bound to rise. If history is any guide, ignoring the sustainability aspect can be damaging. China serves as a classic example. While high growth facilitated dramatic increase in consumption levels, it led to rapid degradation of the ecosystem, choking pollution and rising social tensions. Eventually, their policymakers had to shut thousands of manufacturing plants.

Some of the policy developments in India too, such as Delhi’s experiment with odd-even cars, move towards BS-VI compliance and now electric vehicles, plastic ban in Maharashtra, plant closures in Karnataka around Bellandur lake were in response to rising pollution. We witnessed social backlash, leading to a copper plant closure in Tamil Nadu, Supreme Court’s ban on liquor sales on highway and cancellation of coal blocks allocation (with adverse impact on mining and power companies). On the governance front, multiple instances of auditor resignations, excessive leverage, questionable “related party transactions” and accounting issues have recently come to the fore. Such issues may remain unattended for years. But once brought to the surface, it erodes the economic value of the businesses at one go. To sum up, investors can ignore ESG issues at their own peril.

Look at it another way: returns from equity funds are largely a function of the beta (market return) and the alpha that the fund manager generates above the market. Market return, in the long term, is dependent on the economy. Long-term sustainable growth of the economy comes only when businesses focus on sustainability. So, when large fund houses start focusing on ESG, it signals the companies to integrate sustainability in their business practices which, in turn, creates long-term win-win for all. Globally, large pension funds started putting pressure on fund managers to adopt ESG in their fund strategy.

Further, there is growing global evidence of better risk-adjusted performance of ESG strategies, which is also contributing to rapid growth in their assets under management. Even in India, the Nifty 100 ESG index has outperformed Nifty 100 index across time periods.

It has been challenging for us to implement the framework due to inadequate data availability. However, regulatory requirement of sustainability reporting now applicable to top 500 companies has helped. Over time, the policy nudge combined with better data and analytics will facilitate a more systematic approach towards it.

As part of the ESG framework, we look at around 50 parameters across the governance, environmental and social aspects, with the emphasis being in that sequence. These include energy and water consumption, carbon emissions, use of renewable energy, waste management, long-term impact of companies, products and business on environment and society, supply chain, relationship with workers, government and local community, among others. The relative importance of these parameters differs across sectors.

Advocacy is a critical part of responsible investing strategy and we work with several institutions to sensitize Indian companies as well as investors about the importance of ESG compliance for its long-term success. Over and above exercising voting rights, we actively engage with our investee companies on ESG-related matters.

The best preparation for tomorrow is doing your best today. Asset managers should pull up their values-based socks as the need to invest with an eye on environmental, social and governance issues will only get stronger.

(The article was originally published on Live Mint at – )


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